This error means that you have a file named rust-toolchain in the current directory or one of its ancestors, and the file is not in the expected format (a single line with the name of a rustup toolchain, or a TOML file with a specific layout).
It looks like older versions of rustup would ignore anything after the first line of rust-toolchain, but the latest version will throw an error if the file contains multiple lines but is not in TOML format.